How has retirement evolved in the past 30 years?
Eric: Maybe it is easier to talk about how it HASN’T! 30 years ago pensions were still a thing and management of a 60/40 public stock/bond portfolio was set in concrete. Today, many pension plans are bankrupt or on the brink of it — social security is no different — and individuals must plan for their own “retirement.” I put that in quotes because I don’t think most of us expect to be able to stop working.
The idea of sitting on your porch in a rocking chair, sipping lemonade, is from a bygone era. How we become financially self-sustaining while living longer than ever expected remains a mystery, but one thing is for certain, investing solely in the public markets will not achieve this end.
We all need market outperformers and that means alternative or private or real (you choose) assets: real estate, private equity, venture capital, private credit, farmland, artwork, crypto, etc. Thankfully, the asset management and financial advisor communities recently have recognized this need and my hope is that we are on the leading edge of major change.
Pomp: You mention social security and pension plans are going to be bankrupt, which the government estimates will happen within the next decade. How will that impact individual’s retirement plans?
Eric: A little bit of a broken record here, but how WON’T it?! The absence of supplemental income means we are 100% reliant upon the investing we do today to meet our needs tomorrow…and the next day. Consequently, we need regulatory change that levels the investment rate playing field between 401(k)’s, Solo 401(k)’s, SEP IRA’s and traditional IRA’s. The annual contribution cap for each should be raised to $50,000, and if necessary, we can set a lifetime contribution cap of $3m, so long as we provide mechanics for inflation-driven increases to these caps.
Pomp: What can the average citizen do to prepare today for a world with no social security and an underperforming pension fund?
Eric: Educate ourselves! Financial literacy in our country is sorely lacking. We can employ robo-advisors to cost effectively invest in the public markets, but how do we invest in opportunities with the potential for market outperformance? Alto’s mission to unlock access to alternatives for all has to begin with financial education. We need to do for alternative asset investing the same thing that Schwab did for public market investing — make it so that anyone has the confidence to participate in a financially healthy way.
Pomp: Any other ways you see retirement evolving for the future?
Eric: All things being equal, an increasing life expectancy will require greater financial resources, which means we will all work longer than our ancestors. I have no clue as to how that exactly translates to the evolution of retirement — it may mean the death of retirement (pun fully intended). On a more serious note, it makes me think we should all be investing in our mental health. To the extent possible, do what you love and love what you do. Corny and cliche, and hard to execute, I know, but what’s lost in trying?
Pomp: When it comes to saving for retirement, what do you think are investors’ biggest concerns?
Eric: I think investors are most concerned that they’ll make mistakes because they don’t know what they are doing. Seek advice. Get smarter. And practice! We’re going to make mistakes, so when you’re getting started, and you should start early in life, start with small investments so that no one mistake is crushing. The rule of thumb is that the winners, while maybe fewer in number, should be larger than the losers, even if there are more of them. Continue to invest in your winners and cutoff your losers.
Pomp: What is the biggest thing that people miss when thinking about their retirement planning?
Eric: The earlier they start, the better prepared they will be in the future.
Pomp: What are the benefits of investing in alternatives in your retirement accounts vs. traditional brokerage accounts?
Eric: The opportunity for market outperformance. It really is that simple. Portfolio diversity may only be achieved with the inclusion of assets whose returns are uncorrelated to the public markets, and we know that diversity reduces portfolio volatility while increasing returns.
Pomp: Why are alternatives such a big focus to you and AltoIRA? How do you see that helping investors over the long run?
Eric: Because they’ve been off-limits to most of us and only accessible by the uber wealthy. There’s a misguided belief that the wealthy can invest in alternatives because they’re sophisticated investors. This is so truly false that I don’t even know where to begin and if this were a podcast I’d be dropping f-bombs all over the place. I like to say that wealthy does not beget intelligence, but intelligence can beget wealth. It’s easy enough to test for “investor sophistication” so why don’t we do it? What are we afraid of?
Theoretically, if we aren’t going to let the everyday investor invest in startups, for example, then we shouldn’t let them work for them either. I mean, are these people smart enough to assess the true risk and opportunity cost of not going to work for a public company? That’s a rhetorical question, completely tongue-in-cheek, but you get my point. And as long as we’re talking about public companies, just because they’re public doesn’t mean you should invest in them — but we don’t have time for that discussion right now!
Pomp: How does Alto provide something unique or different than the many other retirement platforms?
Eric: 90% of all investable dollars in US households that comprise the “99%” live in retirement accounts. Most investment platforms will not allow these individuals to invest in alternative assets — public stocks and bonds only — with these funds. Alto flips that paradigm and only allows you to invest in alternative assets with your retirement dollars.
In addition, we’ve built a platform that connects you to potential investments and executes the investments you make. We serve as the custodian for those investments, so they remain tax advantaged or tax free (if you use a ROTH IRA) until you take retirement age distributions. Our mission is to unlock access to alternatives for all.
To date, we have approximately 30k clients and more than $1 billion in assets under custody.
